Pattern of Industrialisation in India

Pattern of Industrialisation in India Since Independence

• Functional Pattern of Industries

  • The second important aspect of industrial growth relates to the pattern of industrialisation that has been followed since Independence. The pattern of industrialisation can be studied under two heads: (a) Functional pattern of industries, and (b) Ownership pattern of industries.

  • Use-based or Functional Classification of Industries

    • With use-based or functional classification as the criteria, various industries can be divided into four groups, viz., (i) Basic industries, (ii) Capital goods industries, (iii) Intermediate goods industries, and (iv) Consumer goods industries.

  • Sectoral Developments and Growth Phases

    • Five distinct phases relating to the compound rates of growth in different industries can be observed.

    • The First Phase: Till Mid-1960s

      • In the first phase, the rate of growth of industries, in general, had picked up very fast. A major contribution in this direction was made by the basic and capital goods industries.

      • The pattern of industrialisation that evolved during the period had shown two features:

      • i) A rapid growth of basic and capital goods industries,

      • ii) A slow growth of consumer goods industries.

      • This pattern was in consonance with the strategy of growth evolved during the Second Plan and followed during the subsequent Plan.

    • The Second Phase: 1965-75

      • In the next phase, beginning with the mid-1960s, the rate of industrial growth began to slow. The growth of basic and capital goods industries was slower than in the past and slower than even the meagre average growth in industrial output.

      • Where growth was moderately high, a majority of the industries belonged either directly or indirectly to ‘elite-oriented consumption goods’ sector, like consumer durables which have been described, perhaps aptly, as the ‘Cinderella of Indian industrialisation’.

    • The Third Phase: 1975-90

      • During this phase, industrial growth was fairly diversified; growth rates in all different segments picked up. Basic goods industries maintained a consistently fairly high rate of growth, as did the capital goods and intermediate goods industries.

    • The Fourth Phase: 1990s and Beyond

      • During the 1990s, while the relative contributions of basic and capital goods sectors declined, there was a rise in those of intermediate and consumer goods sectors.

      • The relatively low contributions of basic and capital goods sectors to overall industrial output in the 1990s reflect, among others, the import of trade liberalisation that enabled the corporate sector to make financial gains through ‘other income’, as well as the lack of competitiveness requiring industrial restructuring and modernisation of technologies in a number of industries.

      • Decisions need to be taken by the industries themselves, given the policy environment that encourages foreign trade, financial, and real sectors to play their due roles in economic growth.

      • There has also been a visible rise in the share of consumer durables, with new brands of consumer goods hitting shop-shelves at a fast pace.

    • The Fifth Phase: Slowdown Phase 2008-09 Onwards

      • The slowdown started with consumer durables in the second quarter of 2007-08 but overall growth was supported by other use-based categories including intermediates and consumer non-durables, albeit at lower rates.

      • Growth in production of capital goods continued at a robust pace, reflecting high investment rates.

      • However, with the decline in growth of intermediate goods from the first quarter of 2008-09, overall growth showed a sharp dip accentuated in the third quarter of 2008-09 when remaining groups also showed a sharp drop.

      • By the last quarter of 2008-09, all sectors of the industrial economy had entered the revival mode. Industrial recovery became broad-based with reduced volatility.

      • Within industry, the fastest growing sectors were capital goods and consumer durables.

      • The capital goods sector grew robustly at an average rate of 17.1 per cent during 2009-10. Growth in capital goods in 2010-11 was gradually moving on a less volatile high-growth path.

      • The consumer durable goods sector grew by an average of 25.8 per cent during 2009-10. Lower interest rates under expansionary monetary policy, increased salaries, and payment of arrears after the Sixth Pay Commission recommendations boosted demand for consumer durables.

      • Consumer non-durable goods continued to lag behind in performance and showed sharp volatility in growth.

      • Other use-based categories, such as basic goods and intermediates, recorded higher and more consistent growth during 2009-10.

      • Currently, basic industries account for 21 per cent of total industrial output, consumer goods 19 per cent, intermediate products 53 per cent, and capital goods 7 per cent.

Ownership Pattern of Industries in India

• State's Role in Industrialisation Strategy

  • The ownership pattern of industries evolved as a direct consequence of India's industrial strategy, which relied heavily upon basic and capital goods industries. It was realised early by the framers of this strategy that the State would need to perform the entrepreneurial function itself.

  • The rationale behind this policy decision was based on the following factors:

  • • In the years that followed the First Five-Year Plan, the public sector in India expanded rapidly. It eventually came to account for nearly two-thirds of the net domestic capital formation in the economy.

    • However, after the Third Plan, net domestic capital formation in the public sector began to slow down. Since then, it has generally fluctuated between 45 per cent and 48 per cent.

• Emerging Ownership and Organisational Structure

  • These investment trends are reflected in the structure of ownership and organisation that has emerged over the years.

  • Starting virtually from a clean slate, by the mid-1990s the public sector — comprising Central, State, and Local governments — had gained the following significant shares:

  • • 4.7% of the total number of factories

    • 27.4% of total employment

    • 55.0% of total productive capital

    • 34.3% of total emoluments

    • 25.5% of total value of output

    • 30.1% of total value added

  • However, it is important to note that the government's share in output, value added, and employment is still substantially smaller compared to its share in capital and assets.